ATS Corp (ATS) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, welcome to ATS Automation fourth-quarter conference call. I would like to remind you that this conference call is being recorded on May 23, 2013 at 10.00 AM Eastern Time. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for the queue up for questions.

(Operator Instructions)

I would now like to turn the call over to Stewart McCuaig, Vice President and General Counsel of ATS.

Thanks operator, and good morning everyone. Your main hosts today are Anthony Caputo, Chief Executive Officer of ATS, and Maria Perrella, Chief Financial Officer.

Before we begin, I'm required to provide the following statement respecting forward-looking information, which is made on behalf of ATS and all of its representatives on this call. The oral statements made on this call will contain forward-looking information. The actual results could differ materially from a conclusion, forecast, or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from a conclusion, forecast, or projection in the forward looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in ATS's filings with Canadian Provincial Securities Regulators. Now it's my pleasure to turn the call over to Anthony.

Good morning, ladies and gentlemen. I am assuming you have seen our press release. Maria will review the financial highlights in a few minutes. In the fourth quarter we continued to make progress with our value creation plan. Our financial results were solid. We achieved strong order bookings and ended the quarter with record backlog. Today I will update you on our Q4 performance, conditions in the market and our outlook. On solar I will update you on the sale process. I will then make some summary comments.

Q4 revenues were CAD153 million, up 6% over Q3, but 12% lower than last year. Our Q4 EBIT margin was 9%, which was consistent with both Q3 and last year. In the fourth quarter, our margin was lower than we planned due to some transportation programs which were not offset by other segments. For the year our EBIT margin was 9.6%. On bookings, we secured CAD170 million of new orders which were driven primarily by larger programs. Our approach to market and success in transportation and life sciences contributed to achieving a record backlog of almost CAD400 million.

As a reminder, during the year we won two significant enterprise programs on our EUR65 million Nigeria program. Work is progressing as planned and we have engaged our subcontractors. Financial close has slipped by one quarter and the customer has informed us that they have secured bridge financing. ATS has received a milestone payment of EUR7.5 million and another EUR7.5 million is expected shortly. On our CAD40 million program with the North American life sciences market leader, we are on track working through design and we are engaged with the customer on further opportunities.

Turning to our markets, our follow-on proposal activity remain healthy. By market, transportation is strong and we continue to see a number of opportunities in both traditional and new technologies related to automotive and heavy equipment. Life sciences also remains strong with opportunities in pharma and medical devices. In energy we are consuming opportunities in nuclear and oil and gas. Consumer parts and electronics still remain weak. Our goal is to continue to provide value-based enterprise programs where ATS provides enabling plant-wide solutions for our customers in addition to one-off machines. As I noted, this provides ATS with increased predictability, more strategic customer relationships, better program control, and less sensitivity to macroeconomic forces. In terms of outlook, the health of the global economy remains somewhat uncertain. Asia is improving. However, North American recovery is slow and Europe remains weak. While we're seeing significant opportunities, our customers continue to exercise caution and be very deliberate with their investments.

Turning to solar, as a reminder our objective was to separate solar on a cash neutral basis. Last year we completed the separation of solar assets in France, which exceeded our expectations. In the third quarter, we sold four of the seven projects held by our JV. We have received down payments of CAD750,000 for these projects. Total net proceeds are expected to be approximately CAD20 million. In the fourth quarter, we completed our solar exit specifically. We finalized a definitive agreement to sell the manufacturing assets from our module line. Net proceeds are expected to be approximately CAD6 million. We signed a memorandum of understanding for the sale of our remaining three projects. We expect to complete a definitive agreement in the first quarter of fiscal '14.

Overall, we have separated solar and exceeded our objective to do so on a cash neutral basis. I don't expect to have any material developments to report regarding solar going forward. Given the separation of solar, we will revert capacity in our Cambridge campus to our core business and divest a vacant Cambridge facility. These facility developments, strength in the automotive and life sciences, along with weakness in energy provide us with an opportunity to improve our cost structure and better balance our capacity. We expect to incur charges in the first quarter of approximately CAD2 million related to these actions, which will be offset by gains from the building sale.

In summary, our fiscal 2013 operating performance was strong and we have record backlog. Strategically, we fixed our business, separated solar, and are now focused on growth. Organically, we are successfully transitioning to include enterprise programs. Accordingly, the magnitude, quality, and predictability of our backlog and prospects for the future have improved. From an acquisition point of view, we are applying significant resources with a view to making this a more meaningful part of our growth. At the this point I would like to turn the call over to Maria.

Thank you, Anthony. Overall, fiscal year '13 was a successful year as our base business continued to generate strong earnings and we made progress on our strategy of pursuing and winning enterprise programs. This morning I will focus on ASG and our balance sheet and also make a few comments on solar.

I'll start with our results from continuing operations. In Q4, revenues of CAD153 million increased over Q3 revenues of CAD144 million. As we've said in the past, fluctuations from quarter to quarter are to be expected due to the longer-term nature of our backlog. For the year, revenues of CAD591 million were essentially flat to fiscal year '12 due to a combination of lower bookings versus prior year, the composition of backlog, i.e., longer period of performance programs, and foreign exchange rates. Normalized gross margins for fiscal year '13 were 25.4% compared to 25.7% last year. When comparing margins, two one-time gains in fiscal 2012, the CAD3.7 million US R&D tax credits, and CAD3 million gain on sale of building have been removed.

On a quarterly basis, Q4 and Q3 gross margins were approximately 24%, a slight drop from normalized gross margins, which have been in the 25% to 27% range in the last six quarters. Q4 margins were impacted by certain transportation programs. For the year, SG&A costs were CAD89.5 million, compared to CAD93.5 million in the prior year. Quarter over quarter, Q4 SG&A costs of CAD21.5 million were CAD4 million lower than Q4 last year. Overall, we expect normal course SG&A spend to be relatively flat in the long term, or in the CAD23 million to CAD24 million range per quarter, not taking into account the impact of acquisition costs. Fiscal 2013 operating margins of 9.6% were slightly higher than fiscal 2012 normalized operating margins of 9.2%.

Fiscal-year 2013 bookings of CAD623 million were slightly lower than prior-year bookings of CAD688 million. Quarterly, bookings were CAD168 million, CAD112 million, CAD173 million, and CAD170 million for Q1 through to Q4, respectively, with lumpiness as a result of the timing of enterprise solution wins. The addition of enterprise programs to our base machine offerings has increased average order value from approximately CAD1 million to CAD4 million. Accordingly, the character of our backlog has improved. The duration of our backlog has increased to seven to nine months, with stable revenues. As a result, today we convert approximately 35% of our backlog to revenue within one quarter compared to 50% two years ago.

In terms of fiscal '14, last quarter I said that we would see a step change increase in revenues in Q3 and Q4 as assembly and build activities take place on the two enterprise projects. As financial close of our Nigeria project has been delayed by one quarter, the project revenue ramp will be slower. Backlog has increased from CAD382 million at the end of fiscal '12 to a record CAD398 million at the end of fiscal '13, which sets ASG up well for fiscal year '14. Also, not included in closing backlog is approximately EUR55 million of the EUR65 million Nigerian order, which we will book and record in backlog as we receive payments or when the program reaches financial close. Recall that approximately EUR10 million was recorded in Q2 fiscal '13. As Anthony noted, we expect to book an additional EUR15 million in Q1 this year.

Turning to solar, as a reminder, its results are included in discontinued operations. Solar is substantially behind us. In fiscal '14 we expect to realize gains from the sale of the projects and manufacturing assets of approximately CAD20 million, not including the three remaining projects. The wind-down of the Ontario operations has commenced. It is expected to cost approximately CAD2 million and will be completed in Q1 fiscal 2014.

Moving to the balance sheet, I'll review cash from operations and working capital as a percentage of revenue. At the end of the fourth quarter our total cash position in continuing operations was CAD105.5 million compared to prior year's CAD96.2 million. For the year, total cash generation was CAD9 million compared to prior-year usage of CAD28 million. For fiscal year 2013, cash generation of CAD9 million was made up of solar operations usage of CAD7 million, ASG cash generation of CAD16 million, including investment and working capital of CAD26 million. ASG working capital as a percentage of revenue at year end of 14% was slightly higher than the average levels of between 11% and 13%, evident in the first three quarters of fiscal '13 and fiscal '14. In fiscal '13 we have continued to make investments in certain strategic programs. We will continue to see quarter-over-quarter fluctuations in working capital as the timing of investments and receipt of cash from milestone achievements will not necessarily offset one another in the same period. We expect working capital to remain within the 10% to 15% range. With cash on hand of approximately CAD105 million, the new credit facility of CAD250 million, a strong financial base, and a strategy to employ moderate debt leverage, we have considerable flexibility to support our growth strategies.

Turning to net earnings. In Q4 we generated earnings per share of CAD0.10 compared to CAD0.13 from continuing operations in Q4 last year. The decrease is due to lower absolute EBIT dollars on lower revenues combined with a higher effective tax rate. On an annual basis, earnings per share from continuing operations were CAD0.47, or flat compared to normalized EPS in fiscal 2012. Total EPS in fiscal 2013 of CAD0.17 improved over prior year's loss of CAD0.68.

The effective tax rate for the quarter was 33%, higher than the Canadian effective tax rate of approximately 27%, reducing EPS by CAD0.01. Year to date, the effective tax rate of 25% is in line with the expected average annual tax rate of 25% to 27% and also last year's rate of 25%. For the quarter, the effective tax rate of 33% was high due to losses in tax jurisdictions where the benefit of loss carry-forwards cannot be recorded for accounting purposes.

In summary, our automation business is strong. Our funnel remains healthy and our bookings reflect this. Our backlog is at record levels, which sets us up for fiscal year '14 revenues. We will focus on our cost structure and margin improvement to improve our growth and EBIT margins going forward. Finalization of the Nigerian order and other potential enterprise programs as Anthony described will help organic growth. In addition, we will continue to pursue opportunities for growth through acquisitions and we are in an excellent position to support our strategy. Now we'd like to open the call to your questions. Operator, could you please provide instructions for our listeners? Thank you.

To allow as many voices to be heard as possible, please limit yourself to two questions per turn.

(Operator Instructions)

Your first question today comes from Justin Wu with GMP Securities. Please go ahead.

Good morning. My first question is on Fuller. Can you give us a sense of the -- or timing or schedule of that CAD20 million for the first, I guess, four ground mount solar projects you guys sold?

Yes. Good morning. The gross proceeds were about CAD49 million. OPA approval was CAD1.5 million, which is done. Then financial close around June/July of about CAD30 million. And then COD CAD17million. So I think that makes about CAD50 million. And then the net proceeds to ATS are about CAD20 million, on that time scale I just gave you.

Okay. And then what about the other three that you did -- sounds like it was subsequent to the quarter. Can you talk about -- ?

Yes. I think either last call or the call before I said -- don't use the value of the four as a proxy for the three. But the timing is second-half 2013-ish.

Okay. And the terms [are likely] I guess to be less on a per unit or -- if you want to look at it that way -- basis, you're implying?

No, I'm just saying -- just don't use the value of the first four to get to the value of the second three. We're just finalizing the PSA, which is coming weeks, and notice to proceed maybe second half of '13. So that's kind of the timing of it. But those projects have a good amount of value.

Okay. Great. And my second question, just in terms of that transportation contract, which you guys indicated pulled down the margin versus prior quarters. Can you comment -- is that just inherently lower-margin business or was there execution issues on that program?

A little bit of both. So we talked about transportation being slightly lower because of third-party content being higher. And every quarter we have pluses and minuses in terms of execution. And this quarter we had a minus, which is not hugely abnormal, which was not offset by normal pluses.

Okay. And would you characterize the backlog that you have with -- the transportation backlog in terms of third-party content consistent with what you saw in the fourth quarter?

It would be consistent with what we've seen throughout fiscal '13, and transportation generally is in the 50% to 55% range for third-party content, whereas on average the whole of our Business is more in the 45% range.

Okay. Great. Thank you.

Your next question comes from Daniel Kim with Paradigm Capital.

Anthony, I wonder if I could just drill down a bit more on what I perceive to be a bit of a disconnect between what the street is anticipating exiting Q4, and where this Nigerian contract sits. Understanding, obviously, you don't give guidance, but when I look at this contract, and we look at the top-line revenue contribution, I wonder if you can comment at all on how this might impact bottom-line results? Because when I look at the earnings ramp for the street, we have earnings going from -- they just posted CAD0.09 this quarter, ramping up to CAD0.20 in Q4. But when we look at this contract, which will be deliverable over three or four quarters, EUR65 million, but then you have six major subcontractors. Can you give us a sense of how much this could potentially contribute to bottom-line earnings? It seems like a pretty aggressive ramp. Obviously, [this reflecting] for some growth from other areas, but when we look at what happened this quarter, there was in fact a bit of a decline in your core business. So can you help me just understand how this might potentially impact bottom-line results?

Okay. I'll talk about the Nigeria contract, and I'll start and then Maria. So I think on our last call, Maria laid out -- or the call before -- laid out the profile of that contract. And she talked about two or three phases, where we begin with design development, and then we engage subcontractors and order materials, and then we get into an assembly process, and then we get into a finishing process. And it's sort of like a bell curve where, during the design development there is relatively low activity because -- from a revenue point of view -- because we're in a design mode. And then when we enter into engaging subcontractors and procuring materials, and bringing those materials in and assembling, which is the next two, let's say, phases of a typical enterprise contract, the revenue is significantly larger because there's much more activity. And then in the fourth phase of it, it begins to wind down again as the project is installed, and the customer is trained and brought up to speed, and so on and so forth.

So in my comments, I think I said that the design is well underway, and that we are in the process of engaging with our subcontractors, including our own companies, if you will, as a subcontractor. Maria talked about the ramp in revenue. And we both talked about the fact that the program closing -- the customer's closing has slipped by a quarter. But that is somewhat offset by the fact that the customer has secured bridge financing, and we have been already paid EUR7.5 million, and expecting another EUR7.5 million. So that EUR15 million keeps us going, so to speak, although not at the rate that was originally anticipated had we reached financial close a quarter ago.

And I would just add to that, regardless of when the revenues are recognized and how they're ramping, our revenue recognition is a percentage of completion, and the profitability is the same throughout the program. To date, we've recognized some of the CAD10 million that we talked about in Q2 or Q3 that we -- where we got the down payment on. And with the one-quarter delay that Tony has also talked about, we would see the revenues ramp up or a step change happen in Q4 versus last quarter I talked about seeing revenues in Q3, Q4, Q1. And with the EUR15 million that we will shortly see, that amount we would expect to have revenue throughout -- around Q1 to Q3. So the impact of Nigeria, we would see not as much as we had talked about previously.

And then, in terms of margins, we don't provide that guidance. But from what we've said, you can figure out what the revenue impact would be on our base business.

Would it be safe to assume, given you haven't broken out the exact contribution from the six subcontractors, that the margin contribution from this type of contract would be materially lower than what you would typically experience in life sciences?

No, that would be incorrect. So -- well, I've said a number of times during our fix phase in this Company that we got to 15% EBIT at the divisional level before corporate costs in two ways. The first one to fix program execution. So if we fix the way we deliver programs, that gets us to about 10%. So we've done that.

The other 5% I talked about coming from two different sources. One, better management of our suppliers and our supply chain, including ourselves. And two, having better pricing opportunities in the marketplace. So as the programs get bigger, our ability to control the program stays the same because we have a number of subcontractors. And from a subcontractor point of view, there is no incremental risk. So the divisions -- the ATS divisions participating in the program are doing what they normally do, so no incremental risk.

And with respect to the engagement with the customer, it's a much more strategic relationship, and it's a greater opportunity to price better. So it's not worse; it's at least equal to or better.

Okay. Great. That's helpful. Thanks.

Just one last question, if I can. Recently, Rockwell reported rather volatile views in terms of what they're seeing in outlook, experiencing, particularly in international markets, a bit of uncertainty with regards to the customer deployment of large capital programs. I wonder if you can comment on what you are seeing in terms of your pipe, please? That's it for me. Thank you very much.

We are seeing the same thing we saw a quarter before, and a quarter before. I would describe it as sort of sideways. A lot of proposal activity, strength in transportation, life sciences, some consideration and reconsideration on behalf of customers spending money. But nothing different this quarter as opposed to last quarter or the quarter before.

Great. Thank you.

Your next question on the line comes from Mac Whale with Cormark Securities.

Maria, last quarter we saw some gross margin compression, you talked about the transportation orders at the end incurred extra costs before they shipped. But you said on the call that those had shipped, and you shouldn't see any more impact from that. Are these new programs in transportation then that incurred similar types of overruns?

As we've said, it's a bit of a mix. In Q4, what we saw were lower-margin transportation programs coming through. Just to be -- or provide more detail on that, we bid these programs at lower margins, and we're experiencing the impact of those, in addition to just some poor program performance on other transportation programs. The Q3 ones were -- as we said, were substantially done, and those had little to no impact on Q4 margins.

Okay. So the fact that it sort of happened again, is there something you're concerned with at all about operations? Is there something that's changed or -- in other words, should we expect this to continue?

We're not concerned with operations, and we don't expect it to continue. I think, as we've said before, generally we have programs that do better, and some programs that do a little worse, and we expect to end up at a gross margin of around 25% or better. It just so happened that we didn't have any offsets this quarter.

Okay. And then on the order side, your order booking's roughly the same as three months ago, but there was no big CAD40-million big enterprise order. So when you look at the average -- first question -- is the average order size still the same? And if so, doesn't it imply that you saw a big increase in this sort of average level in terms of the number of actual orders of average size?

In our orders for the quarter, we did have one large transportation order, which was in the CAD35 million to CAD40 million range. And we have had those in the past. We don't really consider those to be enterprise-type programs, they're just more programs. And if we take that out, then I would say the average program size in our Q4 bookings is similar to the past -- to what we've seen in the past quarters.

And so the average order size is roughly the same, and the average number of those order sizes are typically the same then, as well? So it's kind of a -- the CAD170 million, in other words, is very similar to Q3 in terms of its makeup of order sizes?

Yes, very similar. So what we've seen in the last four or maybe six quarters is about -- the top-10 bookings account for somewhere between 60% to 65% of our bookings. And that was no different than in Q4.

Okay. And then on -- lastly, on the solar manufacturing, am I reading it right? It sounds as if you actually sold the facility itself, but not the actual manufacturing facility, and that's why you are incurring CAD2 million to actually shut it down. Is that correct?

When we talk about selling the assets, we sold inventory and the capital assets, not the building.

And so now we have a vacant space in our Cambridge campus, and we have a vacant building down the street. So we sold, conditionally, the vacant building, and we are going to take that vacant space and reorganize our capacity to take advantage of the fact that the space is in our Cambridge campus, and the fact that we have strength in certain markets and weaknesses in other markets. So, sale of a building not related to the sale of the solar assets.

I see. I understand now. Okay. Thank you very much.

Your next question comes from Cherilyn Radbourne with TD Securities. Please go ahead.

Thank you very much. Good morning. I think this is related to what you were just speaking about. I was just looking for a bit more detail on the restructuring charges you intend to take in the Automation Systems Group, and the savings you expect in the associated time period?

I can answer that. CAD2 million, approximately, offset by the sale of the building -- CAD2 million approximately. When? Now -- like first quarter. And payback is always 12 months, 18 months.

Okay. That's helpful. And just in terms of some of the recent currency movements, I think historically you have had competitors who would tend to benefit from a weak yen, and historically I believe that a weaker Canadian dollar has been at least somewhat helpful to ATS. So I just wondered if you could comment on some of those dynamics?

We haven't had foreign exchange dictate or impact what we do, how we do it. We use our global footprint. And depending on where or what the exchange rates are doing, we would use divisions that would positively impact our results. So fluctuations in foreign exchange rates don't really impact us that much.

Okay. So it's not the impact it was historically?

No.

Historically, each division would bid independently. Today -- I'll get the number wrong -- 65% of everything that we do involves more than one division. Every time we bid on something, we conceive a concept of operation which is a function of many things, including customer preferences, capability within our own Company, foreign exchange rates, import taxes, duties, et cetera, et cetera. And so the currency fluctuations don't really affect us.

Okay. Thank you. I'll pass it off.

Your next question comes from David Tyerman with Canaccord Genuity. Please go ahead.

Good morning. A question on margins. Excuse me. It's unclear to me then when you look at all of the factors affecting you, how margins are going to play out next year. Is the expectation that it will pick up a little bit in the short term because this mix will revert to a more normal level? And then in the longer term, let's say toward the end of the year or into next year, that it could pick up again further as you start to execute on some of these enterprise programs, or execute in a more significant way from a revenue standpoint?

I'll start. I think the way to look at margins is -- we are in the 10%, and we're constantly working to improve that in a number of ways. Then the next step comes from having larger programs, which are enterprise programs, which should improve that. And then the next step comes from using our balance sheet to acquire businesses, whether they're broken or not broken. And if they are broken, to fix them and make them behave like the Company -- the original Company, ATS, that we fixed, and the two acquisitions that we fixed without materially increasing the corporate costs. I think that's the game plan to margins.

Yes. And just in terms of timeline, what we've talked about is, in the short term, being in the 25% gross margin range, which we were at, at the beginning of the year. And then EBIT at around 10%. And then towards the end of the year when we start to see the impact of the enterprise programs, we could see some improvement in those margins.

Okay. That's helpful. And then just on the -- when I look at the statements, note 7 construction, contracts and inventories that show your contracts in progress, the estimated earnings that are included in that -- what would those be equivalent to? I can't figure out a line, whether it's EBIT or EBITDA or what it would be.

It's at the gross margin level.

Okay. So if I do a calculation, like it seems like it's a lot lower than the gross margin, if I'm doing this right. Like if I just take the CAD106 million over CAD801 million, that sounds like a lot lower number. Is that not the right way to think of this?

I see calculators calculating.

(laughter) It's 13.3%.

Stand by.

It depends on the stage of completion of the program. So it wouldn't be correct or accurate to just do the calculation that you did.

Okay.

Or in other words, that calculation doesn't really tell you that much.

Okay. Okay, so ignore it. Because it's a lot lower at March 31, 2013 than March 31, 2012, and I don't know whether that has any implication or not?

I'd say no implications on our margins going forward. You can't use that.

Okay. Fair enough. Maybe then I can ask a question. Can you just talk a little bit about what the M&A environment looks like right now?

Yes. So I mean, I'm not going too far back but -- so we bought two companies while we were busy doing other stuff. We significantly took away the distractions by taking all the solar stuff away. I talked last call about doing a deep dive on two companies in Q3, which we aborted for two different reasons. We have a very significant capability.

We're engaged on a number of opportunities. I talked about -- we are pursuing two sort of channels. One being the type of acquisition that we've done in the -- before -- like a sortimat or ATW range. But I think a couple of calls ago I said that we're looking to make acquisitions more meaningful in terms of size and strategic importance. So, accordingly, we're looking at bigger stuff as well.

We don't plan to do anything stupid. And the companies that we look at, our primary lens is capability. So, does it bring something that we can combine with our existing Company to enhance and broaden our offering, our organic offering, to create something which is more valuable to the customer? I think, I have every confidence that the acquisition portion of our strategy will return the benefits that we all hope it will.

Okay. That's helpful. Thank you.

(Operator Instructions)

Your next question comes from Mark Neville with Scotiabank. Please go ahead.

Hi. Good morning. I think in your remarks, again, you said for SG&A to expect CAD23 million to CAD24 million per quarter going forward. The last two quarters it's been closer to CAD21 million. Can you maybe talk about either what's happened in the last two quarters to bring that down, or why it reverts back to maybe CAD23 million, CAD24 million going forward?

Sure. In the last two quarters we did take some actions to reduce spending, and we talked about that last quarter. There were some cost savings initiatives in marketing and administration areas, as well as some employee benefits. And some of that also continued into Q4. Going forward, we expect to return to more normal levels. And in addition to that, we will be ramping up a bit more in our M&A and corporate development area, and that would offset any cost reductions or cost-saving initiatives that we have implemented in fiscal '13.

Okay. Just another question on acquisitions or your enterprise. But does your role as the general contractor, we'll call it, sort of in these enterprise-type orders change the -- I don't know if it's changed your acquisition strategy, but maybe the companies that you are more frequently in contact with on the sublevel, are these typically bigger companies, smaller companies? Does that really have any impact?

I've talked a couple of times about the definition of automation. And I've talked about automation means inventing machines that have never been invented before. It means connecting all of those different capabilities and machines together.

So, back to the contractor example. The first one would be inventing a kitchen. The second one is really putting general contracting -- you're putting the kitchen together with the bathrooms, and so on and so forth. And then the third thing in terms of the definition of automation is products. So we're always looking for opportunities to acquire products that are core to our customers, and therefore, the customer would have to buy those products, and then we could build automation around it, so to speak. And then the fourth is services.

So the answer to your question is yes. And our organic approach to market vis-a-vis enterprise systems and our acquisition strategy are connected in that regard.

Does your role sort of open it up, or the subs that you are dealing with do bigger companies? I don't know if I'm thinking about that correctly, but just sort of the, again, who you are subbing some of the work to, maybe opportunities to look at some of those companies to buy? But just generally the size of those companies or just what they do?

I mean, that's always a possibility, but I think the driver is capability more than it is size. So for instance, if we found another ATS that was almost the same as ATS and it was really broken as ATS was, we would certainly consider it because we could probably fix it and make it look like the current ATS.

On the other hand, there are certain capabilities, when we look at the value chain of our customers, that we don't have. So for instance, in the pharma world, we don't have filling and dispensing capability. That might be an attractive capability. We don't have micropackaging capability. That might be an attractive capability. So the way that we look at it is to say -- what capabilities don't we have that then, when combined with our current capabilities, could make us a better general contractor, so to speak.

Okay. So I guess, presumably, the work that you are subbing out is capabilities you don't have, I guess was what I was getting at.

I'm sorry, say the last part again?

Some of the work that you are not doing that you would be subbing out as part of these orders is just capabilities you don't have, I guess?

Yes, you could think of it that way.

Okay. And then on the restructuring charges, the CAD2 million to CAD3 million, I am not sure if you answered this, but did you give an indication of how much cost you plan to take out with those charges -- with those restructuring?

We didn't say, no.

But we did say that we'd get at least a 12- to 18-month payback.

Okay. Thanks a lot.

Your next question is a follow-up from Justin Wu with GMP Securities.

Just a clarification -- there's two different restructuring charges, correct? One is within discontinued, and the other CAD2 million to CAD3 million within ASG?

Correct.

Okay. And I guess in your last MD&A, you talked about impairment charges within solar. Is that something that's above and beyond the CAD2 million, or is that kind of included in there?

We took the impairment charges in Q3, and that was to write down the assets based on the market value of the assets. And in Q1 what we're talking about really is the wind down of the Ontario operations, and the cost of that would be around CAD2 million.

Because we sold the assets.

Because we sold the assets, yes.

Right. Okay. Great. Thank you very much.

(Operator Instructions)

Mr. Caputo, there are no further questions at this time.

Thank you very much, everyone. Have a nice day.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation, and you may now disconnect your lines.